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Fresh HDFC loans to be cheaper

Mumbai, Sept. 24: Housing Development Finance Corporation (HDFC) Ltd, the largest financier of housing mortgages, today slashed its floating rate of interest on home loans by half a percentage point.

But the bad news is that HDFC’s existing home loan consumers will not benefit from the cut since the new rate will be offered only to new customers.

The pioneer housing finance company today announced a special interest rate of 10.50 per cent for customers taking home loans at floating rates of interest. The offer will be applicable to all loans disbursed on or before October 31. This is the second time this year that the corporation is trimming interest rates.

HDFC had earlier announced a monsoon offer in which it slashed floating rates by 25 basis points to 11 per cent in July. The scheme was extended twice and it was valid for new borrowers up to October 15. Thus, the recent cut is over and above the 25 basis- point reduction.

The rate cut comes after HDFC chairman Deepak Parekh told reporters last Friday that the bank would trim rates as the cost of funds had started to come down.

“Our lending rates are a function of our cost of funds and we have seen a reduction there. Historically, we have maintained a pre-determined spread and have always believed in passing on the benefits to customers. This special offer is an extension of the same philosophy,” said Renu Sud Karnad, executive director of HDFC.

Other providers have given no indication yet of following HDFC’s lead.

Sources said this was a good time for people to consider taking home loans. “The rates have been reduced and there is a good possibility that they will come down over the coming months. Therefore, this is good news for those planning to buy a new house,” a source said.

Existing borrowers will, of course, feel shortchanged and sore over the duality in the rates. While new borrowers will now have to pay 10.50 per cent, some of the existing borrowers are paying an interest rate of 11.75 per cent. Although the interest rate on fixed home loans is dependent on the date of disbursal, it is now at 13.25 per cent.

Sources here said banks and housing finance companies would wait for “a structural change in interest rates” by the RBI before tweaking with their prime lending rates against which existing home loans are benchmarked.

Industry circles said much would depend on the RBI’s mid-term review of the annual policy statement that would be undertaken on October 30. “If the RBI reduces rates, interest rates for existing home loan customers could come down,” an official from a private sector bank added.

The RBI has been in a monetary tightening mode from 2004 to control inflation. This has resulted in interest rates on home loans rising by at least 300 basis points in case of adjustable rate loans, while the increase in fixed rates have been even more. Because of rising interest rates, banks and housing finance companies have seen some amount of slowdown in home loan disbursals.

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